Where is the US economy headed?

@hawkeye10,

People buy gold when they don't have confidence in other assets. Ho hum.

How does what's happening now differ from all of the other occasions throughout history when investors flocked to one asset when it lost confidence in another? Or did all of those other occasions also mean that the global economy needed to be reformed?

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@joefromchicago,

joefromchicago wrote:

Without question. But the rise in gold prices doesn't mean that the global economy is structurally unsound or that it needs to be radically altered. It just means that, in an uncertain economy, investors will put their money in assets that they consider to be certain. Gold is one of those assets, but by no means the only one. That's hardly a profound insight.

Again, I agree about the tiresome repeated posting of the gold price.

However the underlying indicators are grave indeed. The recent rise in the gold price far surpasses those that followed our departure from the gold standard and the two ensuing oil price shocks of the 1970s. Those events were associated with an extended period of low economic growth, high unemployment and high inflation - throughout the developed world.

Today Europe and America face very serious combined debt & political crises. The dimnensions of the problems in Europe and America are different but both involve perverse combinations of fundamental demographic shifts threatening the sustainability of social welfare programs; dangerously high levels of public debt in some countries (including the USA); and continuing political paralysis on both continents. The structural soundness of the international economy may be sound, but it is clearly threatened in these areas.

I believe the inclination of the current administration to "address" the problem with more Federal giveaways with borrowed money is at best foolish and at worst positively dangerous. At the same time the political paralysis (in major part fueled by the perception of the borrow and spend inclinations of the administration) is dangerous in its own right.

We need to remove as many governmental impediments to resource and business development as we can. They are legion, ranging from some absurd provisions in the Dodd Frank legislation t0 the health care fiasco and the grotesque "permit raj" we have created with environmental law (there weren't any "shovel ready" projects in major part becuse it takes two years or more to permit any major capital project under current law & regulations). We also need very significant reductions in Federal spending and the size of its growing bureaucracy - mostly to avoid the sand it so assiduously throws in the gears of our economy. We also need serious tax reform & simplification - a reform that will increase the number of Americans who do pay income tax and, at the same time, raise collections from the very rich.

I think that ost of us recognize the truth of these propositions. Unfortunately our politicians can't get past their own election rhetoric.

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@georgeob1,

georgeob1 wrote:

However the underlying indicators are grave indeed. The recent rise in the gold price far surpasses those that followed our departure from the gold standard and the two ensuing oil price shocks of the 1970s.

That's why they call it the Great Recession.

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@realjohnboy,

realjohnboy wrote:

The administration got your message, George! The Dept of Interior announced today that oil drilling rights in the western Gulf will be auctioned off on December 14th. It will be the 1st auction since the massive oil spill.
The article I read mentioned 20 million acres in, I think, deep water. The minimum bid is set at $100/acre which is up from about $38.
This is a subject about which I know little.

That's welcome news. Unfortunately it is almost a year late. Next they could open up the north slope in Alaska to raise production enough to keep the existing pipeline going. After that they could get off their fat bureaucratic asses and get out of the way of bids to reopen mines in the mountain west for rare earths and other minerals whose value is rapidly appreciating. Obama could also call off the NLRB which is outrageously attempting to punish Boeing corporation for daring to build a manufacturing plant in a right to work state - and doing so in the midst of a live or die struggle with Airbus for control of the international commercial aircraft market. (How stupid can they get !!)

Obama repeatedly says he is after a "fair" distribution of wealth. That has been tried by other governments too. They produced "fair" but it involved an equal loss of freedom and uniform drab poverty. Unfortunately he hasn't explained (or demonstrated) how his version might be different.

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@georgeob1,

georgeob1 wrote:

We face a perverse combination of high public debt levels (high private debt too by international standards) and slowing economic performance. A situation in which the rather blithe Keynsian formulas were never proposed as effective - even by their author.

Maybe not, but with the expected real interest rate negative for ten years out, and 0.8% for 30 years out, who cares if the national debt is 50% or 100% of annual GDP? Zero percent of everything is still nothing, and doesn't incur borrowing costs we need to worry about.

georgeob1 wrote:

The argument, based on history, that a sharp decline in the value of our currency will result is fairly persuasive.

Even if it was, so what? A decline of the US dollar will make American exports more competitive in world markets, and foreign import less competitive in the US. Sometimes a falling exchange rate is useful for a country; this is one of those times. Unfortunately though, keeping interest rates low will not make the US dollar fall, because the rest of the world's economy has the same problem (most of it anyway) and is applying the same solution. All currencies of the world cannot fall against all others.

georgeob1 wrote:

Even today's news points out the Fed's dilemma as they try to hold interest rates to very low levels to "stimulate" the economy - while inflation in the prices of consumer goods and vital commodities accelerates.

The current bump in consumer prices comes mostly from volatile prices like food and energy. Core inflation, which excludes those prices, and which is the proper target of monetary policy, stands at a low 1.8%. Inflation is the wrong problem to worry about right now.

georgeob1 wrote:

My opinion is that we need to look to other non-debt inducing measures to both stimulate the economy and combat the steady rise in the prices of basic commodities. Resuning petroleum production in the Gulf and in Alaska would be a good start - certainly more effective than more Federal giveaways financed by more debt.

Or we could just wait for a month. Crude oil prices have fallen about 20% over the last month, so gasoline prices are soon to follow. Selling out public lands to the oil multis is a non-solution of a problem we don't have.

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@georgeob1,

georgeob1 wrote:

Obama could also call off the NLRB which is outrageously attempting to punish Boeing corporation for daring to build a manufacturing plant in a right to work state - and doing so in the midst of a live or die struggle with Airbus for control of the international commercial aircraft market. (How stupid can they get !!)

You mean stupider than Boeing executives actually saying how the company was setting up operations in South Carolina because it wanted to avoid unions? No, I can't imagine it could get that stupid.

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@joefromchicago,

joefromchicago wrote:

You mean stupider than Boeing executives actually saying how the company was setting up operations in South Carolina because it wanted to avoid unions? No, I can't imagine it could get that stupid.

What the hell does the expressed intention of an executive of the company have to do with it ? It isn't against the law to believe (correctly in my opinion) that labor unions are positively destructive to the health and productivity of any organization they infect. Boeing had a two decade struggle with the mechanics and engineers unions in Washington state. That was what was behind their headquarters move to Chicago now over a decade ago. No European or Japanese auto manufacturer has opened a factory in a non right to work state. Were they too attempting to avoid unions?

The ultimate absurdity in this sad afffair is that the unions in question are perfectly free to organize the new Boeing employees in South Carolina. They don't try because they know that, given a choice in the matter, workers almost invariably refuse to join unions. They want compulsory, permanent membership and the forced collection of duers by the infected company. That's a better deal than even the Mafia demanded in its protection rackets.

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@joefromchicago,

Once most people begins to dump gold, the price will drop like a heavy sinker, because there isn't enough cash to buy out the total value as it stands today.

That's unless people do not want to buy food, fuel, and other things with their money.

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@cicerone imposter,

The "other things" renders the economic insight absolutely ridiculous.

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I need to use up a couple of notes I wrote down re the government's auction of drilling rights in December, 2011. I wandered around some industry websites earlier today.
The oil spill was in April, 2010, George. There was some kind of moratorium. Was it on drilling on preexisting leased areas or was it a stoppage of new auctions? Did the 16 month really delay U.S. production coming to market?
There seems to some disagreement within the industry after today's announcement. One faction applauds loudly while others contend that the 3-fold increase in the minimum bid will discourage participation in the auction of rights to 20 million acres. Any opinion?
And then I see criticism that the oil industry already has locked up many millions of acres over the years which they are simply sitting on, seemingly doing nothing to develop. If that is the case, doesn't the responsibility for not getting the U.S. to energy independence the fault of private industry?
It would be interesting to find out how many acres the oil industry is sitting on already.
Should leases expire if development is not being actively pursued?

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@spendius,

When you say The "other things" renders the economic insight absolutely ridiculous. Are you referring to things like medicine, transportation, housing, entertainment and of coarse alcohol for the pub?

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@reasoning logic,

It covers anything anybody chooses to cover. That's the trouble. Seeing the world for example or polishing the coach lamp on the Queen's carriage for when She drives up the course at Royal Ascot in the June sunshine. Making the President's cars bomb proof. It can seem infinite.

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@spendius,

I can only guess that if these things are important to a person and they are not able to purchase them, then the economic situation may seem dire to them!

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@realjohnboy,

rjb, I remember reading several decades ago about the lands that the oil companies already had the rights to minerals including oil. Maybe it's my faulty memory about the time frame.

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@cicerone imposter,

I found an article (Journalists Resource - Harvard Kennedy School of Journalism) that claims that 70% of offshore leased acreage is neither producing nor currently being studied for production. 1/3rd of Gulf leases have approved exploration or development plans but have seen no activity.
57% of onshore leases seem to be fallow in terms of any activity.
If this is true, shouldn't the rancor of the "Drill, baby, drill" people be directed at the oil and gas industry?

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@realjohnboy,

realjohnboy wrote:

The oil spill was in April, 2010, George. There was some kind of moratorium. Was it on drilling on preexisting leased areas or was it a stoppage of new auctions? Did the 16 month really delay U.S. production coming to market?

I think so. There was a large scale exodus of deep water drilling equipment from the Gulf to the new (and less restricted) oil fields off the coast near Santos Brazil after the moritorium was declared. There were numerous reports of objections by the oil companies before the rigs departed but no response from the government and no clear indication from it as to how long the moratorium would last. So the companies moved their capital intensive equipment to wehere it could produce income - good for Brazil, bad for the USA during a serious recession.

realjohnboy wrote:

There seems to some disagreement within the industry after today's announcement. One faction applauds loudly while others contend that the 3-fold increase in the minimum bid will discourage participation in the auction of rights to 20 million acres. Any opinion?

No. I assume there were some winners and losers and the losers complained. A three fold increase is rather large: it appears to reflect the anti big oil bias of the Administration.

realjohnboy wrote:

And then I see criticism that the oil industry already has locked up many millions of acres over the years which they are simply sitting on, seemingly doing nothing to develop. If that is the case, doesn't the responsibility for not getting the U.S. to energy independence the fault of private industry?
It would be interesting to find out how many acres the oil industry is sitting on already.
Should leases expire if development is not being actively pursued?

A complex issue, and I don't know enough about it to be sure. Off shore oil production is a capital intensive proposition. The oil companies would be remiss if they didn't work hard to "stack up" enough known reserves to maintain market production and full use of their equipment over the forecastable future. High costs are also associated with finding the oil in these leased offshore areas, and it is only natural for the company finding them to want to extent the lease and keep them. There is a controversy going on now between ther Administration and Exxon over this issue. Under the current circumstances I would think that our government wouldn't want to unduly penalize the last American producer operating there. Apparently they would prefer to see BP or Shell extract the oil.

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@georgeob1,

Thanks, George. Our last posts crossed. I have used up all of my limited arsenal of ammo on an issue I don't have a great deal of knowledge about. I have made my argument, as have you.
I have no desire to try to get in the last thrust.
Well done. Let's move on. -rjb

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@realjohnboy,

Do you have the age of that article?

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@georgeob1,

georgeob1 wrote:

What the hell does the expressed intention of an executive of the company have to do with it ?

You mean apart from revealing an intent to commit an unfair labor practice and providing the catalyst for an investigation by the NLRB? Well, now that you mention it, I suppose it wasn't so bad after all.

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@cicerone imposter,

cicerone imposter wrote:

Do you have the age of that article?

Aug 11, 2011.

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Where is the US economy headed?

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